Startups, Guerillas, and Value Chains

Facebook is a massive company that owns you and me. Probably uninitiated entrepreneurs believe Facebook sought out for full scale domination from the get go. But the reality is Facebook used guerilla warfare tactics to establish an initial beachhead. Then Facebook began owning larger pieces of the value chain. As startups we must use guerilla tactics and avoid full value chain ownership.

Guerilla tactics must be used by EVERY startup. One of the key guerilla strategies is that you only attack markets you can conquer and subsequently defend. Facebook’s first huge market attack was simply one school that they freaking went to! Once Mark Zuckerberg conquered that school he used additional guerilla warfare to own the next schools. But this phased guerilla attack meant that the Facebook team was only attacking markets they could defend.

Now as far as owning the entire value chain, Facebook still does not own the entire chain. All the content is provided by users. For a long time there was no ads on Facebook. There are a variety of reasons why no ads were on the site but one great reason is hopefully that Facebook did not have the bandwidth to own that piece of the value chain at that early stage. As a startup you should own only a small piece of the value chain to start. Instead of building your own physical products see if you can have someone drop ship for you. Then your startup launches as simply the marketing arm of the operation.

Now compare this with MySpace who tried to own the development of all 3rd party apps. The MySpace team spent precious dev time building 3rd party apps instead of building an API to facilitate a platform. MySpace tried to own too much of the value chain and now no one uses it. Once you become the industry leader like MySpace was, you need to change tactics. As the leader you must counter any offensive move. Therefore when Facebook launched their API, MySpace should’ve countered immediately with their own API.

The key points are:

Startups must tackle smaller opportunities at the beginning of the venture

Own one piece of the value chain

Startups should only attack markets they can own and defend

If you become the leader, defend all offensive moves immediately

This guest post was written by Matt Smith aka @MattASmitty. Matt recently launched his iPhone app, Startup Videos App. He also works for StackSocial doing Biz Dev.